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WTO may not bring joy to either Tokyo or Seoul in subsidies spat

Whatever the trade watchdog rules, both Japan and South Korea know they would pay a heavy political price for abandoning their shipbuilding industries

The stand-off between two of the largest shipbuilding countries in the world over subsidies is a symbol of the ferocious pressures on the sector.

Japan is lining up to take a case against South Korea to the World Trade Organization (WTO) for alleged price dumping and state support.

Truth is that both are heavily under the competitive cosh of another country with heavy state involvement in its yards: China.

It is an interesting aspect of the current war of words between Tokyo and Seoul in that neither want to surrender these industries.

Before China, South Korea and Japan were sequentially top of the league — and you go back to the first half of the 20th century — it was Britain.

Hard to imagine now but that UK ranking reflected three things: a lead in technology, a massive home market emanating from the country’s then global Empire, and political backing.

At one stage, yards from one area in the north-east of England, Sunderland, were said to have built a quarter of all ships in the world. Thirty years on, there are no vessels built there and virtually none in any other UK location.

The UK's technical lead and investment evaporated, the home market collapsed along with the end of Empire. Support from politicians — step forward Margaret Thatcher in particular — died.

The death knell for shipbuilding Sunderland’s Wear river rang on 7 December, 1988, after the launch of the Stena Seawell at the Pallion yard of North East Shipbuilders Ltd (NESL). I know. I was there reporting on it.

The local economy still has not recovered from this even though Nissan built a car plant close by. Sunderland still has some of the highest unemployment in the country, pronounced social deprivation and delivered one of the highest votes for Brexit. The latter was seen as a howl of protest for being left behind.

So abandoning employment-heavy industries such as shipbuilding comes at a political price: Japan and South Korea have a lot to scrap over.

By contrast with Britain, Japanese shipowners have remained surprisingly loyal to their local yards.

Export dependent

Meanwhile, South Korea with its smaller shipowning base has always largely depended on its export market. Only 6% of compensated gross tonnage came from local owners in South Korea at a time of peak output in 2011, compared with 66% in Japan, academic studies show.

That appears to be changing with the latest initiative from the Ministry of Oceans and Fisheries in South Korea. The new plan is that the public sector will underwrite orders for up to 200 vessels to be constructed at South Korean yards.

This seems to have been the last straw for the Japanese ministry of transport — already upset about state bank lending.

The Japanese have lodged complaints with Seoul, saying the scale of the newbuilding programme cannot be justified in today’s market.

They further argue that the level of pricing being offered by South Korean yards cannot be justified on pure commercial grounds.

There has already been a significant programme of state financial help to prevent South Korean yards such as DSME from going out of business.

There has been no formal response yet from Seoul but one key argument against dumping allegations will be to point to even cheaper prices still coming out of China.

South Korea will also no doubt argue that the number of yards capable of delivering vessels of more than 5,000 gross tons has fallen by almost half to 13 over the past six years. Meanwhile, Japan has seen a tiny reduction by contrast, from 53 to 51.

But the WTO may not bring joy anyway.

Remember that when the European Union took South Korea to the WTO it was deemed to have failed to establish a commercial shipbuilding market existed at all.

The north-east of England may have lost its once pre-eminent shipyards but fortunately not its maritime academic excellence.

A stimulating new paper authored by Paul Stott, a former project manager at NESL and now a senior lecturer at Newcastle University, argues that the global shipbuilding industry desperately needs more information and better research.

He suggests an indicator should be established that gives a clear red light when the owners — or governments — are over-ordering ships. That could help Japan, South Korea and the WTO sort out what will inevitably be a messy dispute.

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WTO may not bring joy to either Tokyo or Seoul in subsidies spat

Whatever the trade watchdog rules, both Japan and South Korea know they would pay a heavy political price for abandoning their shipbuilding industries

The stand-off between two of the largest shipbuilding countries in the world over subsidies is a symbol of the ferocious pressures on the sector.

Japan is lining up to take a case against South Korea to the World Trade Organization (WTO) for alleged price dumping and state support.

Truth is that both are heavily under the competitive cosh of another country with heavy state involvement in its yards: China.

It is an interesting aspect of the current war of words between Tokyo and Seoul in that neither want to surrender these industries.

Before China, South Korea and Japan were sequentially top of the league — and you go back to the first half of the 20th century — it was Britain.

Hard to imagine now but that UK ranking reflected three things: a lead in technology, a massive home market emanating from the country’s then global Empire, and political backing.

At one stage, yards from one area in the north-east of England, Sunderland, were said to have built a quarter of all ships in the world. Thirty years on, there are no vessels built there and virtually none in any other UK location.

The UK's technical lead and investment evaporated, the home market collapsed along with the end of Empire. Support from politicians — step forward Margaret Thatcher in particular — died.

The death knell for shipbuilding Sunderland’s Wear river rang on 7 December, 1988, after the launch of the Stena Seawell at the Pallion yard of North East Shipbuilders Ltd (NESL). I know. I was there reporting on it.

The local economy still has not recovered from this even though Nissan built a car plant close by. Sunderland still has some of the highest unemployment in the country, pronounced social deprivation and delivered one of the highest votes for Brexit. The latter was seen as a howl of protest for being left behind.

So abandoning employment-heavy industries such as shipbuilding comes at a political price: Japan and South Korea have a lot to scrap over.

By contrast with Britain, Japanese shipowners have remained surprisingly loyal to their local yards.

Export dependent

Meanwhile, South Korea with its smaller shipowning base has always largely depended on its export market. Only 6% of compensated gross tonnage came from local owners in South Korea at a time of peak output in 2011, compared with 66% in Japan, academic studies show.

That appears to be changing with the latest initiative from the Ministry of Oceans and Fisheries in South Korea. The new plan is that the public sector will underwrite orders for up to 200 vessels to be constructed at South Korean yards.

This seems to have been the last straw for the Japanese ministry of transport — already upset about state bank lending.

The Japanese have lodged complaints with Seoul, saying the scale of the newbuilding programme cannot be justified in today’s market.

They further argue that the level of pricing being offered by South Korean yards cannot be justified on pure commercial grounds.

There has already been a significant programme of state financial help to prevent South Korean yards such as DSME from going out of business.

There has been no formal response yet from Seoul but one key argument against dumping allegations will be to point to even cheaper prices still coming out of China.

South Korea will also no doubt argue that the number of yards capable of delivering vessels of more than 5,000 gross tons has fallen by almost half to 13 over the past six years. Meanwhile, Japan has seen a tiny reduction by contrast, from 53 to 51.

But the WTO may not bring joy anyway.

Remember that when the European Union took South Korea to the WTO it was deemed to have failed to establish a commercial shipbuilding market existed at all.

The north-east of England may have lost its once pre-eminent shipyards but fortunately not its maritime academic excellence.

A stimulating new paper authored by Paul Stott, a former project manager at NESL and now a senior lecturer at Newcastle University, argues that the global shipbuilding industry desperately needs more information and better research.

He suggests an indicator should be established that gives a clear red light when the owners — or governments — are over-ordering ships. That could help Japan, South Korea and the WTO sort out what will inevitably be a messy dispute.